Tourism: the Philippines’ Next Growth Engine

The beauty of the Palawan Islands, Coron Philippines

By Bernardo Villegas and Maria Cherry Lyn Rodolfo

Home to some of the world’s finest tourist destinations, the Philippines can indeed achieve significant economic headway by fostering its tourism industry. Discover how Dutertenomics and the government’s rebalancing strategy or pivot towards its Northeast Asian neighbours such as China, South Korea, Japan, and Taiwan are contributing to the positive outlook of the country’s tourism sector.

 

Under the Republic Act No. 9593 of 2009, Philippine tourism is recognised as an industry of national importance, an engine for investments, employment, growth and national development. Tourism has emerged as the third engine of economic growth in the Philippine service sector, next only to the remittances from Overseas Filipino Workers and the Information Technology-Business Process Management (IT-BPM) sector. Tourism’s contribution to the Philippine GDP reached 12.2% in 2017 and grew by 24.2% from the 2016 record.1 In terms of share to total Philippine export revenues, foreign tourism spending contributed 9.2%, next only to semiconductors and miscellaneous services. Its value expanded by 43.9% – from PhP 311.7 billion in 2016 to PhP 448.6 billion in 2017. The domestic tourism expenditure, accounting for 22.8% of household final consumption expenditure, reached Php 2.6 trillion in 2017, higher by 25.5% from its 2016 record.

There is good news to share with regard to tourism volume, a major component of the tourism expenditures. Domestic tourism, projected at 70 million in 2017,2 continues to serve as backbone of Philippine tourism, making it resilient to external shocks over the years. In 2017, the Philippines hosted 6.6 million foreign tourists or 11% higher than in 2016. For the first quarter of 2018, the number of foreign visitors increased by 14.8% from 1,784,882 to 2,049,094, half of them originating from South Korea, China, and the United States. These figures for the first three months of the year already represented 27% of the 7.4 million target number of visitors for 2018 under the National Tourism Development Plan. The not so good news is that the foreign tourism number of the Philippines is way behind its neighbours. In 2017, for example, the country attracted just 6.6 million foreign visitors compared to Thailand at 33 million, Malaysia 27 million, Singapore 16 million, Indonesia 12 million, Vietnam 10 million. One advantage of our neighbours is that they share borders with each other (unlike the Philippines where more than 98% of tourists enter and exit by air) and their road and airport infrastructure is very good to support multi-country trips and tour packages. The thrust of the new DOT leadership under Secretary Bernadette Romulo-Puyat to implement the National Tourism Development Plan, “to prioritize improving policies on access, connectivity, and security as well as enhance programs on tourism infrastructure”3 and to broaden and deepen the linkages of farming and agriculture with tourism markets in the value chain provide good opportunity to increase yields from longer stay and higher daily spending. By developing and offering diversified, competitive and sustainable product portfolios as well as efficient and seamless transportation across the Philippine archipelago, tourists will have better reasons to purchase multi-island and multi-destination packages thru the extensive network of airports and seaports across the country. Apart from investments in connectivity and access, tourist destinations need investments in destination infrastructure – rooms, water, sanitation, and power – to sustain growth.     

[ms-protect-content id=”5662″]

There is an upside in what is called Dutertenomics, i.e. if the massive infrastructure investment projects both from the government and private sector side (PPP) are actually implemented, the influx of foreign visitors and increase in the number of domestic travellers could even be beyond expectations. Note that a good number of the planned projects involve the improvements of airports in the major tourism destinations like Pampanga, Cebu, Bohol, Palawan, Iloilo, Bacolod, Davao and Cagayan de Oro. The utilisation of these airports for Philippine tourism will not only decongest NAIA that handled a total of 41 million passengers in 2017 vs. its design capacity estimated at 31.5 million passengers annually but also make tourists enjoy higher value for their money thru more direct flights to these international airports outside of NAIA. The opening of the second terminal in Mactan-Cebu Airport in June 2018 by Megawide and the Bangalore-based GMR Group will increase the annual passenger handling capacity of the airport from 4.5 million to 12 million. The construction of the new terminal in Clarkfield, Pampanga is designed to expand its current capacity of 4.5 million to 12 million by 2020. Tourists from the beaches of Central Visayas will find it easier to explore the cultural and natural destinations of the Northern Philippines and vice versa. Infrastructure such as railway to/from Manila to Clark and new toll roads that can be pursued by conglomerates such as Metro Pacific and San Miguel, will significantly reduce the commute time of those traveling north, by as much as sixfold. Cavite and Bulacan are too close to Metro Manila as locations for a new airport to solve the serious congestion problem of the National Capital Region. Both alternatives to NAIA will require very expensive reclamation of land which can be ecologically damaging in the case of Cavite; or in the case of Bulacan, worsen the problem of vanishing agricultural lands about which the Secretary of Agrarian Reform has been complaining.

Also contributing to a positive outlook is the rebalancing strategy being followed by the Duterte Administration in shifting greater attention to our closer relations with our Northeast Asian neighbours such as China, South Korea, Japan, and Taiwan – potential sources of increased tourism flows into the Philippines.  These Northeast Asian source markets already accounted for 53.1% of total foreign visitors in 2017.4 Its first quarter share reached 55% higher than its share of 52.7% during the same period in 2017 largely due to the double-digit growth of arrivals from China, Japan, Korea, and Hong Kong. The Chinese market that accounted for 18.13% grew the fastest at 54.53%. By the end of 2018, the Chinese market would have breached the 1.5 million mark. At a growth of 30% per annum in the next four years, tourists from China will reach the 4.5 million mark and emerge as the Philippine’s top source market by 2022. By that time, China could account for 37% of the country’s target of 12 million foreign tourists. There is a lot of room for growth for tourists from Japan, Singapore, Taiwan, and Malaysia, as well as Australia, and the United Kingdom.

Even more important than its contribution to GDP is the employment-generating potential of the tourism sector, especially in the countryside. For example, the proliferation of bed and breakfast facilities in the rural areas of Palawan, Bicol, Southern Tagalog, Central, and Eastern Visayas – catering especially to more than 70 million domestic tourists – offer employment opportunities to the families of the households of farmers who are among the poorest in the Philippines. As of 2017, the tourism sector was estimated to have a total employment of 5.3 million, representing about 13.2% of the total workforce in the country.5  In 2017, of the total employed in the sector, the Accommodation and Food and Beverage sector accounted for 33.0%; passenger transport 37.9% recreation, entertainment and cultural services 6.2%; retail trade on tourism-characteristic goods 6.6%; travel agencies and tour operators 0.7% and miscellaneous 15.7%.6  The Duterte administration is targeting to generate employment for 6.5 million persons by 2022, which would bring up the rate to 14.4% of total employee7 which is close to the employment rate of manufacturing today.

At a growth of 30% per annum in the next four years, tourists from China will reach the 4.5 million mark and emerge as the Philippine’s top source market by 2022.

It is providential that the current administration has embarked on a rebalancing of the trade, investment and cultural relations of the Philippines with the rest of the world. Without decoupling with its traditional partners such as the United States, Europe, and Japan, the Duterte administration has been giving more attention to its neighbouring countries in Northeast and Southeast Asian countries, especially to China, South Korea, and Taiwan. In 2016, the Department of Tourism profiled the various nationalities visiting the Philippines through the Annual Visitor Sample Survey conducted across the country’s various airports. As a strategic guide to tourism and travel establishments who want to cater especially to the Chinese, we present the results of the survey revealing the particular characteristics of the Chinese tourist market compared to other nationalities that visited the Philippines during the latest available survey period of 2016:

About 51.5 % of Chinese tourists were married and majority (49.3%) were travelling with their spouses, children, and relatives, a lot more so than other nationalities. This family-orientation may be considered a positive factor since the Philippines is also steeped in family-centered domestic tourism. It also bodes well for keeping a morally sound environment in the tourism destinations which usually are spoiled by backpackers and single individuals looking sometimes for the wrong kinds of fun and entertainment.

Koreans were the huge contributors in terms of foreign tourist receipts within average daily spending of $192.5. Chinese average daily expenditure per capita registered at a relatively low $63.4, although the study shows that while they cut back on spending for accommodation and food and beverage they spend heavily on entertainment and recreation and shopping. The Chinese prefer hotels and resorts for their accommodation, especially those travelling in groups, although their spending per capita is quite low based on the survey. There is bright opportunity for bed and breakfast establishments that can be registered with Airbnb. These enterprises can generate more employment in these areas where underemployment is the most serious problem. They can also be compatible with the efforts of the Government to give a big push to the development of small and medium-scale enterprises. A bnb establishment is usually run like a family business.

With regard to shopping, a good number of Koreans (71.2%) do it in tourist duty-free stores while the other four major nationalities (China, USA, Japan, and Australia) were more willing to go to the shopping malls, possibly due to longer average length of stay.

A relatively large number (55.1%) of Chinese visitors were motivated to go to the Philippines because of recommendation by friends and the presence of friends and relatives. Another 10.1% of them were motivated thru television/radio/film/video/internet, one of the highest among all nationalities.  This makes it very necessary for our travel and tourism enterprises to do a great deal of digital marketing targeted to the Chinese market.

Around 9.3% of Chinese respondents came to the Philippines to explore investment opportunities. The other nationalities averaged only 0 to 1%. This information jibes well with my own experience about large investors, especially in the infrastructure area. The majority of investors who have been asking for economic briefings regarding opportunities to invest in the so-called Dutertenomics list of infrastructures come from China. The next group would be the Taiwanese, who have been expressly told by their President “to go South”.

Good climate is the one thing that the Chinese liked in the Philippines much more compared to that of the other visitors. Other factors that international visitors found positive were the warm hospitality they received and the country’s beautiful sceneries and attractive beaches.  No wonder that since the start of more friendly relations with China occasioned by the more friendly diplomatic relations achieved by the Duterte Administration, we have seen a surge of Chinese visitors in key destinations like Boracay. Panglao, and Puerto Princesa.

The thing that the visitors most disliked about the Philippines, as expected, was the heavy and chaotic traffic. This perennial problem in urban areas like Metro Manila and Metro Cebu should be converted into an opportunity for other fop tourism destinations like Central Luzon, La Union, Aurora, Camarines Sur, Albay, Palawan, Bohol, Batangas, and Davao to attract foreign tourists away from these congested urban areas.  Fortunately, there are increasingly more direct flights to international airports outside Metro Manila that can be gateways for foreign tourists.

The development of the cruise tourism industry is an opportunity to complement the air arrivals by making the seaports in the country friendlier to international cruises. A study funded by USAID entitled “Developing the Philippines as a Cruise Destination:  National Cruise Tourism Strategy” outlined bright prospects for the international cruising market if more of our international ports which are gateways to tourism destinations are rendered more cruise ready. The principal ports ideal for cruising are Manila, Subic Bay, Cebu, Davao, and may I add Batangas City (which is the gateway to some of the most attractive beaches in the Southern Tagalog area). The secondary ports are Bohol (Tagbilaran and Catagbacan), Puerto Princesa, Coron (and surrounding islands), Boracay (Caticlan) and Ilocos Norte and Ilocos Sur (Currimao and Salomague).  In 2017, the number of port calls reached 139, up by 93% from the previous year and generated 97,338 cruise arrivals. For the period 2012 – 2017, the cruise arrivals expanded by an average of 20.2%. The main markets were China, Japan, South Korea, and Taiwan. Over the longer run, there will be increased traffic for cruises within the ASEAN Economic Community since our neighbouring countries, especially Indonesia, Vietnam, Thailand, and Myanmar are experiencing a rapid increase in their middle-income households who will have more discretionary income to go on cruises in the region. Whether or not these potentials will actually be exploited in the next five years will depend on the ability of the Duterte Administration to cut through the red tape, bureaucracy and political intrigues that unfortunately torpedo the best-aid plans. 

[/ms-protect-content]

About the Authors

Bernardo M. Villegas is a Visiting Professor of IESE Business School in Barcelona, Professor at the University of Asia and the Pacific (UA&P) and Research Director of the Center for Research and Communication, Manila.  He has a Ph.D. in Economics from Harvard University (1963) and is a Certified Public Accountant, having been one of the CPA board topnotchers.

Dr. Maria Cherry Lyn Rodolfo is an Economic Consultant on tourism to both public and private enterprises and former Assistant Professor of Economics at the University of Asia and the Pacific.

 

References

1. Philippine Statistical Authority. Philippine Tourism Satellite Accounts. http://psa.gov.ph/content/contribution-tourism-economy-122-percent-2017. Accessed on June 8, 2018.

2. National Tourism Development Plan 2016-2022. Department of Tourism. 

3. http://tourism.gov.ph/news_features/opening_statement.aspx . Accessed on May 30, 2018.

4. http://tourism.gov.ph/tourism_dem_sup_pub.aspx.  Accessed on May 15, 2018.

5. Philippine Statistical Authority. Philippine Tourism Satellite Accounts. http://psa.gov.ph/content/contribution-tourism-economy-122-percent-2017. Accessed on June 8, 2018.

6. Philippine Statistical Authority. Philippine Tourism Satellite Accounts. http://psa.gov.ph/content/contribution-tourism-economy-122-percent-2017. Accessed on June 8, 2018.

7. National Tourism Development Plan 2016-2022. Department of Tourism.